1 Equipment is purchased which has an initial cost of 125000

1. Equipment is purchased which has an initial cost of $125,000. It has a 10-year life and its salvage value is estimated to be $12,000.

Determine the initial and annual entries in the accounting equation.

2. Equipment is purchased which has an initial cost of $125,000. It has a 10-year life and its salvage value is estimated to be $12,000.

Determine the book value of the asset after six years.

Solution

1) Accounting Equation =

    Initially

Assets = Liability + Equity

   125000 $( Asset) - 125000 $ (Cash) = 0 + 0

Annual Entry

125000 $ ( Asset) - 125000 $ (Cash) = 11300 (Acc Depreciation) - 11300 (Reduced from profit)

2)

Original cost = 125000 $

Depreciation = 125000 - 12000 / 10

                      = 11300 $

Depreciation = 11300 * 6

                       = 67800 $

Book value at the end of year 6 = 125000-67800

                                                     = 57200 $

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